Startups vs. The Niche Market

In our last post we talked about the key elements you should look into when investing in startups that attempt to resegment a market as low cost entrant, with today’s post we’re going to stick within the resegmentation world. The fourth type of startup that exists is one that attempts to resegment an existing market as a niche player.

These types of startups have one purpose and seek to answer one question: How would the market respond to a new product that addresses specific needs?

Low cost entrants come into the product lifecycle at a similar time as niche players however the focus is entirely different. These types of startups are not going to mass production or volume sales, but instead speaking to a specific need consumers have regardless of the price. This means niche players may be offering more affordable alternatives that solve consumer needs or a more expensive product or service.

The goal of these startups is convince consumers in the existing market that a part or all of their product or service is different enough to reshape the existing market. From our standpoint we look at three different things when examining startups that are entering into a niche market.

Bench:

What we’re speaking about here is the technical capacity to actually develop this new product. Has the startup recruited the necessary people and management team to technically develop the product. This isn’t to speak about conceptualizing the product, which we’ll address in the next point, but rather the programming knowledge, the behind the scenes capacity that is necessary to develop this idea into a product that can go to market.

Creativity:

Creativity becomes secondary to bench strength in this instance because of the complete focus on execution. Entrepreneurs are generally creative people and while that creativity may foster brilliant ideas, if that creativity isn’t working in conjunction with solid bench strength to get your startup running, the company will struggle greatly.

Lack of Ego:

If you hear the words “This is absolutely HOW we’re going to market” turn and walk away. Having an idea is fantastic, being consumed by that idea isn’t. Often times the head of startups will get trapped in the old style of startups and fiercely protect their idea not allowing for it’s different iterations to naturally occur. If this is the case, this startup is seriously limiting its chances in the Web 2.0 environment. If startups can set aside their ego and focus on their creativity and bench strength then they’ve got a pretty good chance of going somewhere.